Does Product Liability Make Us Safer?

Vanderbilt University - Law School; National Bureau of Economic Research (NBER); Vanderbilt University - Department of Economics; Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Strategy and Business Economics

Abstract

Although a fundamental objective of tort liability is to promote safety, the performance of product liability has been more mixed. Safety levels have increased steadily over the past century for reasons wholly apart from tort liability, such as increases in societal wealth and technological progress. Low and moderate levels of liability enhance new product introductions and safety innovations, but high levels of liability have the opposite effect. Similar results are found for new product introductions, patents, and rates of R&D. There is no empirical evidence of a deterrent effect of punitive damages. Jury decision making is hindered by hindsight bias and other cognitive failures, which creates excessive aversion to novel risks associated with innovative products. Jurors’ biases against corporate risk analyses discourages systematic analysis of product risks and potentially beneficial new products.

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